Multiple Choice

Managerial economics is best defined as the economic study of

A) how businesses can make the most profits.

B) how businesses can decide on the best use of scarce resources.

C) how businesses can operate at the lowest costs.

D) how businesses can sell the most products.

Opportunity cost is best defined as

A) the amount given up when choosing one activity over all other alternatives.

B) the amount given up when choosing one activity over the next best alternative.

C) the opportunity to earn a profit that is greater than the one currently being made.

D) the amount that is given up when choosing an activity that is not as good as the next best alternative.

Which of the following is the best example of opportunity cost?

A) a company's expenditures on a training program for its employees

B) the rate of return on a company's investment

C) the amount of money that a company can earn by depositing excess funds in a money market fund

D) the amount of profit that a company forgoes when it decides to drop a particular product line in favor of another one

Unlike an accountant, an economist measures costs on a ________ basis.

A) explicit

B) replacement

C) historical

D) conservative

Another name for stockholder wealth maximization is

A) profit maximization.

B) maximization of earnings per share.

C) maximization of the value of the common stock.

D) maximization of cash flows.

A firm's "normal profit" is best characterized by the

A) average of a firm's profits over the past five years.

B) amount of profit necessary to keep the price of a firm's stock

from changing.

C) amount of profit a firm could earn in its next best alternative activity.

D) the average amount of profit earned in the firm's industry.

Which of the following best applies to the distinction between the "long run" and the "short run"?

A) The short run is a period of approximately 1-6 months while the long run is any time frame which is longer.

B) In the short run, only new firms may enter, while in the long-run firms may either enter or exit the market.

C) The rationing function of price is a short-run phenomenon whereas the guiding function is a long-run phenomenon.

D) All of the above statements are correct.

In the short-run if there is a surplus in the market for a product, the rationing function of price can be expected to cause

A) an increasing shift in the demand for the product.

B) a decreasing shift in the supply of the product.

C) an increase in the market price of the product.

D) a decrease in the market price of the product.

The guiding function of price is

A) the movement of price to clear the market of any shortages or surpluses.

B) the use of price as a signal to guide government on the use of market subsidies.

C) a long-run function resulting in the movement of resources into or out of markets.

D) the movement of price as a result of changes in the demand for a product.

Which of the following refers to a shift in the demand curve?

A) "This new advertising campaign should really increase our demand."

B) "Let's drop our price to increase our demand."

C) "We dare not raise our price because our demand will drop."

D) "If new sellers enter the market, the demand for the product is bound to increase."

Which of the following will not cause the demand curve for good X to shift?

A) a change in the price of X

B) a change in the price of Y, a complement

C) a change in the price of Z, a substitute

D) an increase in average disposable real income

Which of the following is correct? The supply curve will shift when

A) income, preferences, or the number of suppliers change

B) income, preferences, or the number of buyers change

C) income, preferences, or production technology changes

D) the number of sellers and the number of buyers change

E) production technology and input prices change

A fall in the price of pesticide use in the production of Cotton, will

A) decrease the supply of Cotton, causing the supply of curve of Cotton to shift to the left

B) increase the supply of Cotton, causing the supply curve of Cotton to shift to the left

C) cause a downward movement along the supply curve of Cotton

D) have no effect on the supply of Cotton

E) none of the above

Which of the following would lead to a short-run market surplus for tomatoes?

A) The price of tomatoes increases.

B) A new government study shows that tomatoes have a greater risk of contamination from Salmonella .

C) An increase in the price of potatoes.

D) A decrease in the number of tomato growers.

In the short run, a change in the equilibrium price will

A) always lead to inflation.

B) cause a shift in the demand curve.

C) cause a shift in the supply curve.

D) cause a change in the quantity demanded or supplied.

Which of the following statements is false?

A) An increase in demand causes equilibrium price and quantity to rise.

B) A decrease in demand causes equilibrium price and quantity to fall.

C) An increase in supply causes equilibrium price to fall and quantity to rise.

D) A decrease in supply causes equilibrium price to rise and quantity to rise.

What economic conditions are relevant in managerial decision-making?

What other business disciplines are related to Managerial Economics?

Suppose that the demand for oranges increase. Explain the long -run effects of the guiding function of price in this scenario.

For each of the following changes, show the effect on the demand curve, and state what will

happen to market equilibrium price and quantity in the short run.

a. Consumers expect that the price of the good will be higher in the future.

b. The price of a substitute good rises.

c. Consumer incomes fall, and the good is normal.

d. Consumer incomes fall, and the good is inferior.

e. A medical report is published showing that this good is hazardous to your health.

f. The price of the good rises.

The market for milk is in equilibrium. Recent health reports indicate that calcium is absorbed better in natural forms such as milk, and at the same time, the cost of milking equipment rises. Carefully analyze the probable effects on the market.

Suppose that macroeconomic forecasters predict that the economy will be expanding in the near future. How might managers use this information?